The Arbitration and Conciliation (Amendment) Ordinance was introduced by the Indian government on November 4, 2020. The Arbitration Conciliation Act (Amendment) of 2021 (hereafter referred to as the "2021 Amendment") took the place of the ordinance on March 11, 2021. This article's main goal is to assess the most recent changes made to the 1996 Arbitration and Conciliation Act (hence referred to as "Act"). It aims to alter the 1996 Arbitration and Conciliation Act's structure. The Act specifies the legal requirements for conducting conciliation processes and includes provisions for domestic and international arbitration. The author's goal in writing this post is to explain the changes that the new amendment has brought about.
Changes brought by 2021 Amendments
- Section 36
In accordance with Section 36(3) of the Act, awards may be stayed from taking effect if the courts find the circumstances to be satisfactory. A second proviso was introduced by the 2021 Amendment, which states that if the courts are persuaded that there is prima facie evidence that the arbitration agreement or the principal contract upon which the award is based was influenced by fraud or corruption, they may grant an unconditional stay for the awards. The 2015 Amendment Act's (i.e., 23.10.2015) effective date means that the amendment is applicable to any arbitral procedures and court actions arising out of them that were started before or after that day.
It is important to remember that the 2015 Amendment already includes the provision that an arbitral award may be revoked if fraud or corruption was used to influence or affect its creation. (See Explanation 1(i) in Section 34(2)(b)(ii). However, the 2021 Amendment now permits a stay in cases where fraud or corruption was used to compel the award, the arbitration agreement, or the main contract. Due to uncertainty and concerns over the expeditiousness of disputes involving fraud and corruption, such an adjustment was required. Now that the awards are unconditionally on hold, the courts can better examine the cases as needed.
The Supreme Court's two-judge panel ruled in N. Radhakrishnan v. Maestro Engineers that disputes involving claims of fraud and significant malpractices cannot be sent to arbitration.
The people involved in this issue were partners in a partnership firm. The appellant had made claims of negligence, fraud, cooperation (among respondents) to steal the firm's funds, and forging company accounts for private gain. He blamed the replies for the situation and made the offer to leave the company once he received his income and a cut of the company's revenues in relation to his investment. In other words, he disagreed with taking that offer as definitive and said that his retirement was dependent on the payment of dues.
However, the respondents were not in agreement with the appellant's quantum claim, so they continued and with reformed the partnership and launched a lawsuit to have the appellant declared to be no longer a partner in the company. They asserted that the appellant's offer to retire was clear-cut and accepted as such.
The original partnership clauses of the original deed would still apply, according to the appellant, who questioned the legality of the reconstructed partnership. Since the partnership agreement had an arbitration clause, the appellant subsequently submitted a Section 8 application directing the issue to arbitration. Respondents refuted this claim, arguing that since the original partnership agreement was no longer in effect following reconstitution, the arbitration provision in it was inapplicable and could not be used to refer the issue to arbitration. Additionally, it was argued that arbitration would be ineffective since the appellant's arguments required "detailed evidence" and contained "serious" legal arguments that entailed "substantial questions of law" and involved charges of fraud and malpractice.
1. Did the arbitrator have jurisdiction over the dispute?
2. Could a disagreement involving "serious allegations" needing "substantial evidence" be decided by an arbitrator?
The Supreme Court stated unequivocally that although while the subject matter fell under an arbitrator's purview, the case nonetheless required judicial review because it was a "complicated matter." It was done for this reason: claims of fraud, financial misconduct, and cooperation might result in criminal charges. Being a product of the contract, the arbitrator's jurisdiction was confined to its boundaries. While the courts were governed by the detailed Evidence Act and the Codes of Civil and Criminal Procedure, which better prepared them to decide the case and provide broader remedies.
2. Substitution of new section for Section 43J and the omission of Eighth Schedule
Since many stakeholders had begun to lose faith in Indian domestic arbitration, Justice BN Srikrishna had noted in the Committee Report of 2017 that the accreditation of arbitrators was a vital reform required to enhance the process of institutional arbitration in India. This was due to the fact that we were falling behind ADR centres like Singapore and London. Indian arbitral institutions must in all respects be competitive with international arbitral institutions. The Chartered Institute of Arbitrators (CIArb), among other organisations founded in India, was mentioned as a possible source of accreditation for the arbitrators.
It made the following recommendations, for example:
It may be possible to create an APCI (Arbitration Promotion Council of India) to acknowledge professional organisations that offer arbitrators accreditation.
For international commercial arbitrations with a seat in India and other arbitration processes with a seat in India where the claim value is greater than or equal to 5 crores, such accreditation may be preferred.
Governments at the federal and state levels may specify that in arbitration cases involving government contracts, only accredited arbitrators may be selected.
The Arbitration Council of India was constituted by the Arbitration and Conciliation (Amendment) Act, 2019 (by adding Part IA to the Act), in light of the foregoing. Additionally, Section 43J was added, which detailed the qualifications, requirements, and other standards for arbitrators' accreditation. The Eighth Schedule was then the direction given to 43J. The Act was amended to include the Eighth Schedule, which lists the requirements for arbitrators in terms of education, training, and general standards.
The schedule was criticised for its restricted approach, which made it difficult for India to be an arbitration-friendly country. It had made it illegal for foreigners to be appointed as arbitrators in proceedings held in India.
The Eighth Schedule will be replaced with Section 43J of the Act, according to Sections 3 and 4 of the 2021 Amendment Act. The scope of qualifications has been increased by assuring the inclusion of many people with knowledge in various sectors by removing the Eighth Schedule. The 2021 Amendment Act's Section 3 (i.e., Section 43J (amended) of the Act) stipulates that the arbitrators' credentials, standards, and certification will be outlined in "regulations." Regulations are those laid out by the Arbitration Council of India under the Act, as stated in Section 2(1)(j).
The growth of the Indian ADR system is very clear from the yearly notification of back-to-back modifications. Over the past few years, a number of measures and amendments have been put out to make our nation more and more arbitration-friendly. Scholars have both praised and condemned these new adjustments from various perspectives. Others see it as a simple desire to address the objectives of alternative dispute resolution. Some regard these modifications as improvements for improved international support and involvement.